Deck 4: Company Constitution

Question 1

John, Robert and Jackie are the only shareholders of Camelot Pty Ltd. John and Robert (who between them hold 80% of the issued shares in Camelot Pty Ltd) want to ensure the shares of Camelot Pty Ltd are not sold to Nixon Pty Ltd, a competitor of Camelot Pty Ltd. John and Robert can call a meeting of shareholders and pass a special resolution altering the constitution to provide that shareholders in Camelot Pty Ltd can transfer their shares to any person except Nixon Pty Ltd without the consent of the company and that amendment is enforceable.

Answer 1

False

Question 2

Article 11 of the constitution of GI Joe Pty Ltd provides:
"This constitution can only be amended by the company passing a special resolution and with the unanimous consent of Class A shareholders."
Notwithstanding Article 11, the constitution of GI Joe Pty Ltd can be amended by the company passing a special resolution in accordance with s 136(2) of the Corporations Act 2001 (Cth).

Answer 2

False

Question 3

While the constitution of a company is technically a contract between, inter alia, the company and its directors, it is a unique contract created by statute pursuant to which no consideration is given and therefore it is not enforceable by the directors.

Answer 3

False

Question 4

Nightclub Pty Ltd is a company which owns a number of night clubs on the Gold Coast. It has a constitution which provides, inter alia:
"No person shall be excluded from attending events at venues owned by Nightclub Pty Ltd unless the directors pass a resolution excluding any such person."
Jack was drunk and causing mischief at one of Nightclub Pty Ltd's venues when a manager (who was not a director) said to Jack that he was excluded from the venue and could not return. Jack can enforce the constitution and argue that the exclusion is not enforceable as it was not supported by a directors' resolution.

Question 5

Pirate Pty Ltd has a constitution which includes the following article:
"All employees must be given 30 days' notice before being terminated."
Joshua, an employee of Pirate Pty Ltd, is terminated with no notice. Joshua is able to enforce the constitution pursuant to section 140 of the Corporations Act 2001 (Cth) and require Pirate Pty Ltd to give him 30 days' notice of termination.

Question 6

While the constitution of a company is technically a contract between, inter alia, the company and its directors, it is a unique contract created by statute pursuant to which no consideration is given and therefore it is not enforceable by the directors.

Question 7

Only mining companies are required to have an objects clause.

Question 8

Jerry is the managing director of Little Boat Pty Ltd ("Little Boat"). The constitution of Little Boat provides that the managing director cannot enter into any contract with a value in excess of $100 000 without the board first passing a resolution. Which of the following is incorrect:

A) Little Boat is a proprietary company and must have at least one director ordinarily resident in Australia.
B) If Jerry entered into a contract in excess of $100 000 and the contract counterparty was aware of the limitation in the constitution, the contract would most likely not be binding.
C) ANY contract entered into by Jerry for a value less than $100 000 is binding.
D) The constitution could be enforced by Jerry as he is a director of Little Boat.
E) If Little Boat desired to take the provision out of the constitution, at a minimum, it would need to pass a special resolution.

Question 9

An entrenched provision in a company constitution is:

A) a clause that cannot be changed under the process in s 136 of the Corporations Act unless an additional condition specified in the constitution is satisfied.
B) a clause that cannot be changed under the process in s 136 of the Corporations Act under any circumstances.
C) A provision in the replaceable rules that must be included in the company constitution.
D) A change to the company constitution that is binding on all members.

Question 10

What is (a) a memorandum of association; and (b) articles of association? Why are they still relevant?

Question 11

What are replaceable rules? When is it appropriate for a company to use the replaceable rules?

Question 12

What rules govern single director/shareholder companies?

Question 13

What is a constitution? Why would a company use a constitution instead of the replaceable rules?

Question 14

Who is bound by the replaceable rules and constitution?